I think that the Panic of 2008 like the Panic of 1907 was rigged to achieve some aims by the banking cartel. The financial industry was consolidated, political power was extended, globalization was forwarded and losses were transferred to the public sector. In addition, asset prices were discounted allowing insiders to buy on the cheap. Having achieved these ends, the cartel will now blow another bubble. And so on. The "crisis" is what they want it to be and lasted as long as they needed to accomplish their intermediate term goals. I don't see another major financial/economic upheaval for several years...next will be public sector debt/Treasuries/USD crisis. Not till the 2011-2012 time frame.
With regards to "The Economy", the fundamentals have been poor for decades and are merely more overtly bad at the moment. Fundamentally our "Economy" floats upon a sea of debt. When the availablity of debt money decreases, as we saw in the recent Financial Panic, then the underlying weakness of the real economy is laid bare. When more debt money becomes available there is the appearance of relative economic growth. We're seeing the leading edge of a reflation of debt growth at this time and so "Economic Indicators" are giving the appearance of improvement.
With regards to markets, the only "fundamental" that matters is the supply/demand configuration.
Supply: Sold Out in a massive, engineered panic.
Demand: trillions in scared money sitting on the sidelines, trillions more of new money injected by the Fed and Treasury and then the short interest of Bears continually trying to pick a top.
Don't look for anything even remotely resembling a top until we see the 200 DMA on SPX. Around 970.
I am expecting a "buy the news" reaction to the "Stress Test" event. Really, the news is already out. If the financials were going to sell off, they had their chance. All we have seen is a breakout of a reverse head and shoulders bottom, a retest and a consolidation.
Every dip, however insignificant, is being bought. Insiders are accumulating for a big bull run while the stunned public sits on the sidelines nursing their wounds. The media is busy building the Wall of Worry...swine flu, stress tests, credit card defaults, commercial real estate...the list of Worry items is endless. Bull markets climb a wall of worry and this is exactly the behavior we are seeing now.
This week's close above SPX 875 represents a breakout after a consolidation lasting several weeks. Some strong upside should be in the offing.
5/4/09 Addendum: And today's breakout above SPX 880 and 900 in a single session further validates that the market is SOLD OUT and the only sellers who remain are SHORTS who are now being forced to cover. A decline below 875 and weekly close below 860 (lower rail of uptrend channel) is required to turn the market bearish. Stops at 860 are recommended.
5/6/09 Update: I sold 50% of my long position today and went long the Ultra Silver ETF.
We're at the top of the trend channel on the SPX right now which should produce a pullback to the recent breakout level of 880. That will provide an excellent entry opportunity for a sustained bull run. Your stop would be at the bottom of the trend channel around 850.
The performance of small caps relative to large caps is a helpful indicator. I also like to compare the NYA to the SPX. When the NYA and RUT are outperforming the indications are for decreased risk aversion and a bullish trend. When they start to lag, like during the last week (along with NDX), it can be an indication that a pullback is in the offing. I am expecting a pullback to SPX 880 before an assault on the resistance zone around the 200 EMA at SPX 975-1000.
5/7/09 Update: The pullback has begun, led by the underperforming NDX. We'll see if there is support at SPX 900 and then 880. I do not expect a huge breakdown here but rather an overbought profit taking selloff. It may take nimble fingers to get back in at 880 (if that target is in fact reached).
QQQQ is threatening a trendline break of the move going back to March. I would NOT suggest trying to short this. A bearish engulfing candlestick is being produced on the Q's today as well. It engulfs the prior 3 days. This is topping action. It could engulf the prior 5 days if we close below 34.00.